Addressing D&O Exposures of Nonprofit Board Members

April 5, 2017

D&O exposures of nonprofit board members include but are not limited to harassment, discrimination, wrongful termination, inefficient administration, financial mismanagement, negligence and acts beyond the granted authority.

Employment practices liability claims are the most common D&O claim of nonprofits. For example, a nonprofit terminated one of its executives because of multiple complaints of sexual harassment by employees. In turn, this executive sued the nonprofit and board of directors for wrongful termination and interference with contractual relations. While the nonprofit was successful, the cost of the long legal process exceeded $250,000.

Fundraising activities while necessary for the successful and continued operation for a nonprofit also present exposures for board members. For example, a D&O claim involved a donor who made a large contribution to a nonprofit slated for a specific purpose. The nonprofit’s executive director and board of trustees instead used a portion of the donation to fund a building expansion. The donor filed suit, alleging misappropriation of funds. The damages included return of the full contribution plus interest. As some of the money was already spent, the nonprofit would be financially unable to return the entire donation.

Directors and officers can be sued by employees, donors, the public, third party and others. The average claim is more than $100,000 and a lawsuit can easily destroy a nonprofit, putting it out of business. On top of that, the individual assets of board members are at risk, too, including their homes and investments.